August 2016

08/31/2016

Trusts are not right for everyone, so they need to be fully explored before being created.

If someone says you need a trust as part of your estate plan, you should speak with an experienced estate planning attorney before moving forward. A recent post from NJ 101.5, “The disadvantages to trusts,” notes that there are situations when a trust is not the right planning tool.

Trusts can save on estate taxes but are typically subject to higher income tax rates than those of an individual taxpayer once the “grantor” (i.e., trustmaker) dies. Trusts have to pay income taxes on the income they generate by the assets they hold. Such irrevocable trusts hit the top bracket at a very low income threshold: $12,400 of taxable income in 2016. The top income tax bracket for an individual doesn’t happen until his or her income exceeds $415,050. Also, the additional 3.8% net investment income tax applies at low thresholds.

So, when a trust is being used for estate tax planning purposes, it’s smart to measure the estate tax efficiency of the trust versus the potential income tax inefficiencies of the trust.

These tax rules are in effect when the trust pays its own taxes. However, in some situations, a trust will be a “grantor trust,” which means that the grantor of the trust is still treated as the owner of the trust’s assets for income tax purposes. As a result, since the income of the trust is taxed to the grantor, these lower tax thresholds usually don’t apply.

Aside from the gory details of taxes, remember that the use of trusts for tax or asset protection purposes typically means you give away absolute control over the trust assets—that would apply if the assets were owned by the grantor or the beneficiaries.

A trustee is designated for the trust to conduct investment and distribution decisions. This trustee is, in many instances, a family member and (when properly drafted) the beneficiary of the trust—neither the grantor nor the beneficiary will have the level of access either would have enjoyed had the assets been owned outright and outside of a trust.

An estate planning attorney will be able to help you maintain control over your assets while benefiting from the protective characteristics that a trust provides. These are complex legal instruments and should only be created with the help of an experienced estate planning attorney.

08/30/2016

A woman’s suit to contest her father’s decision to give his estate to a not-for-profit failed, as his will was found to be valid. The family’s split over religion was never resolved, and there are no winners here.

A panel of three judges upheld a previous ruling that Stacy Wolin was legally disinherited by her father, according to an article in The Algemeiner, entitled “New Jersey Woman Fails to Contest Father’s Will Over Alleged Bias Against Jewish Spouse.” The estate of Kenneth Jameson will instead go to the Hospitaller Order of St. John of God Community Services, which serves people with developmental disabilities. As unpleasant as her father’s wishes were, the will was found to be valid.

Wolin told the court that because her parents disowned her when she refused to stop dating a Jewish man, who was the man she eventually married and with whom she had three children, she was forced to pay for her college education by herself. She also had to spend her semester breaks at her boyfriend’s house because her father didn’t want her around.

She stated that her father (whose wife passed away prior to his death) once confronted the rabbi at the temple where her boyfriend’s family worshiped and accused him of brainwashing his daughter.

Wolin also claimed that her father would not meet his grandchildren, who were reared according to Jewish tradition.

Wolin’s father, Kenneth Jameson, died in 2014 at the age of 81. In his will, which he signed in 1987, he explained that his daughter would inherit nothing for rejecting the “love, care and concern which I lavished” on her, acting “with selfishness, manipulation, cruelty and with abusiveness.”

The judges ruled that even though a will’s provisions may be “shockingly unnatural and unfair,” the court is bound and required to uphold its validity if it was written by an individual “of sufficient age to be competent and … of sound and unconstrained mind.”

The state’s Law Against Discrimination does not make it unlawful to disinherit a child based on an alleged discriminatory motive founded upon religious beliefs or affiliation, ruled the court. Regardless of whether one agrees or not with Jameson’s beliefs, his will provided a clear explanation for his disinheritance.

08/29/2016

Think of an estate plan as a love letter to your family after you have passed.

You’d be surprised at how many people you know don’t have a will or an estate plan in place. They may be among the many who have an unspoken belief that if they don’t have a will, they won’t die. That would be terrific—if it were true. Or, they think that only people who are wealthy or have complex tax issues require estate planning.

The Sabetha (KS) Herald’s recent article, “Understanding the estate planning process,” says that both of these ideas are wrong because your level of wealth and the ultimate tax consequences of your estate take a back seat to the planning and care of your family and other heirs.

A revocable trust allows you to control the distribution of your assets and possessions, as well as designate guardians for your children or plan care for other dependents. This trust typically has a “pour over will” prepared to “fund” the trust with any assets not titled in the trust while you are alive or designated to pass to the trust (or directly to beneficiaries) at your death. Your estate planning attorney can create this for you and assist you with a complete analysis of your current estate by reviewing your financial position as of today and analyzing your family’s needs in the future.

An experienced estate planning lawyer will help you plan for a family member who has special needs or requires medical attention, prepare for the cost of a college education when your children reach that age and determine how estate taxes may impact your assets as they are currently held. Disclosing relevant information to your estate planning attorney will help you develop an estate plan that will properly provide for your family’s needs.

In order to conduct a complete and thorough estate analysis, your attorney will ask for all materials involving your current or future income, property ownership, insurance and any legal arrangements already in place. In addition, you’ll need to inform him or her about all of your retirement benefits and plans: Social Security, IRAs, pensions and profit-sharing plans, investments, certificates of deposit, real estate, life insurance policies you own (as well as policies you have on others), beneficiaries, other trust agreements and your will.

In addition to these documents, bring a list of your debts (both current and anticipated)—including home mortgage, loans, real estate liens, taxes, credit card debt, consumer debt and estimates of other expenses of which you are aware. Your estate planning attorney will help you put all of this information together to provide you with an estate plan that will give you peace of mind.

08/26/2016

If you enjoy watching the Olympics, try thinking about your own retirement planning efforts in the same way that the athletes in the pentathlon fight to win the gold.

The modern pentathlon, a five event sport, bears a remarkable resemblance to retirement planning today. The five events—fencing, swimming, show jumping and combined running and shooting—and how they relate to retirement planning is detailed in The Des Moines Register’s article, “How the pentathlon reflects retirement planning.”

Fencing. When fencers spar, it’s like investors balancing risk and return in their portfolios. With riskier assets, you get a better return potential. Safer investments help limit your vulnerability in a down market. A sound asset allocation strategy is like the parrying of the contestants…whether to go for broke (literally and figuratively) or balance the attack.

Swimming. The water and the waves in pool lanes create resistance and drag for swimmers. It’s never just smooth as glass when there’s a race on. A person can also experience times of resistance and slowing in his or her portfolio—like during an economic recession or an interest rate hike. The way to get around this is with a diversified portfolio to withstand the waves and to be ready to seize an opportunity when market conditions improve.

Show Jumping. This component of the pentathlon involves jumping over barriers while on horseback, which is no easy task. Obstacles can appear in life beyond market and economic risks that can ruin a well-planned retirement. There are taxes that will be part of your life, and inflation will increase your cost of living over time. Don’t trip over a barrier but rather plan ahead for what might occur.

Foot race. The pentathlon concludes with foot racing and shooting at targets—much like the final stretch that many folks face in the years leading up to retirement. These individuals are trying to save as much as possible. Part of this training requires preparing for potential health care costs in retirement, teaming with an experienced estate planning attorney to create a proper estate plan and including risk management elements in their financial plan.

To be an Olympian takes determination, dedication and practice. Similarly, you’ll be more likely to succeed in this long-term effort if you keep in mind the reasons behind building a retirement nest egg and what matters most to you now and in the future. Blend in some fun along with your hard work so that you can stay committed and reach your goal: an enjoyable and fulfilling retirement.

08/25/2016

It’s a straightforward concept: if you have a will, you have the ability to determine what you want to happen to your possessions when you pass away. Your heirs will have less stress and will know that you cared enough about them to take care of this important matter.

You may not think that Abe Lincoln, Bob Marley and Prince have anything at all in common. Well, Prince and Bob Marley were great musical forces. But Abe Lincoln?

None of the three had a will.

Kiplinger’s article, “4 Strategies to Avoid an Estate-Planning Mishap,” surmises that their reasoning was probably just the same as it is for most people. They were too busy with everyday life. Besides, who wants to think about being dead? It’s easier to be busy, but forgetting to have a will makes life for your heirs considerably more complicated and more stressful.

People don’t realize how much can be accomplished in a very short time with an experienced estate planning attorney. Similarly, they also don’t understand the issues that can pop up if they don't have a plan in place.

While you may hear about income and investments at every turn these days, you may not hear about important topics like taxes, health care, asset protection and leaving a legacy for your family, friends, and charities.

Be certain that you’ve made every effort to express how you want your assets distributed when you die. Take a look at these four basic strategies and discuss them with an experienced estate planning attorney to help you avoid an estate planning mishap.

Get that will in place. A will directs your executor about your wishes and spells out how you want your assets distributed when you pass away.

Consider a living trust. This can protect your assets and can help your estate avoid probate. While you may believe you don't need a living trust, it can help make certain your assets are managed according to your wishes even in the event that you’re no longer able to manage them on your own. In addition, you can sign a health care directive and power of attorney so those you trust can make decisions about your physical and financial well-being. Finally, trusts are not public court records so your affairs remain private.

Title your accounts appropriately. Get that trust in place or set up a "transfer on death" designation. This lets assets pass directly to the beneficiaries named by the owner. Also, make sure you’ve properly named the beneficiaries and contingent beneficiaries on IRAs and other tax-qualified accounts.

Think about life insurance. A policy is used to provide a death benefit for your family and can augment the legacy you pass down. It can help cover final expenses—like funeral, burial and medical bills.

So you aren’t a world-famous musician or an important American president. Think of this as your opportunity to do one thing better than Abe, Bob or Prince. Meet with an experienced estate planning attorney and prepare an estate plan.

08/24/2016

Trusts have different functions and what might be suitable for one type of trust may be all wrong for another.

Financial Planning’s article, “How to invest trust assets,” provides a good overview of commonly used trusts and general suggestions about which types of investments are appropriate for different kinds of trusts. Investing assets is a very individual matter, and recent changes to the tax law must be taken into consideration—as well as current market conditions and available investment products.

Bypass or Credit Shelter Trust: This is a very common trust in estate planning. It shelters the amount of exemption from tax available on death. Usually assets are held in this trust to benefit the surviving spouse—although other relatives can be beneficiaries as well. When the surviving spouse dies, the assets pass to heirs without being taxed in that individual’s estate. That’s why it’s called a “bypass” trust—it jumps over the surviving spouse’s taxable estate. However, with recent changes to the tax laws raising the estate tax exemption to $5 million ($5.45 million for 2016, given the inflation adjustment), the surviving spouse’s estate may no longer have estate tax liability. If that’s the case, then growth inside the trust will result in higher income tax costs to heirs. If this happens, one might consider moving assets out of the trust through permissible distributions or even terminating the trust if allowed.

QTIP Marital Trust: These trusts are intended to qualify for the estate tax marital deduction and obligate the payment of income at least annually to the surviving spouse, who is required to be the sole beneficiary. The income distribution requirement will affect the choice of investment allocation, and thought should be given to protecting the trust and growing it for remainder beneficiaries. This is especially important if they are children from a prior marriage and a husband has formed the trust for his second wife. The assets of a QTIP trust will typically be included in the spouse’s estate—meaning if his or her estate isn’t expected to be taxable, assets in the trust will receive a step-up basis at death with no offsetting tax cost. If that estate is expected to be subject to an estate tax, that risk should be reviewed.

Irrevocable Life Insurance Trusts: These days, life insurance is commonly held in trusts that own other substantial assets. One should determine the cash flow needed to maintain current and anticipated life insurance—with any excess being invested under a longer-term plan. At the insured’s death, the proceeds have to be invested in a manner that fits the post-death trust objectives.

Revocable (Living) Trusts: These trusts are controlled by the settlor who created the trust investments, and as a result, the allocations can be as he or she chooses. However, if the settlor becomes incapacitated and a successor trustee takes over, that person will probably be subject to the standards of a prudent investor and state law. If that is the case, maintaining the settlor’s investment plan might not work. Be sure to confirm the identity of the trustee and that he or she understands the responsibilities. In the event the settlor steps down as trustee, a new investment plan may be needed.

Dynastic (Grandchildren’s) Trusts: This trust was traditionally used to pay for college and was invested in a manner to achieve that goal. But with more 529 plans, grandchildren trusts are rarely used for this reason. Now, they’re usually designed to provide long-term growth for future uses—such as providing cash flow to grandchildren and future generations. Note: these trusts may include a term allowing the trust to own personal use assets. If so, that may be relevant to the investment timeline and risk profile.

GRATs (or Grantor Retained Annuity Trusts): In the past, GRATS were structured for short-term investments with highly detailed asset allocation. The trust would contain only one stock or one type of asset. If it grew, it would be “immunized” by swapping in cash for the highly appreciated assets. When the GRATs ended, the process would be resumed, which was referred to as “cascading” GRATs. However, in the future, it may not be possible to re-GRAT assets sequentially. Planning for GRATs today, especially for individuals who are not elderly, needs to take a longer-term approach. This might include a diversified portfolio to shift performance in excess of the current low interest rates out of the estate over the term of the GRAT. This would be a very different investment approach than in the past.

Trust investing requires a coordinated team effort between your estate planning attorney, financial advisor and tax professional to ensure that all of the parts work smoothly together towards the same end.

08/23/2016

Single seniors looking to buy a home together gain several advantages, but there are certain legal issues that need to be addressed to protect buyers and their heirs.

Buddying up to buy a retirement home is a great idea for single seniors who have more purchasing power together than they could on their own. But according to NJ 101.5 in “Buying a retirement home together,” certain estate planning aspects need to be addressed so that if one of the owners passes away or if the situation doesn’t work out, the other owner has some level of protection.

Titling the property is critical in eliminating potential problems in the future.

There are two ways to title the property— “Joint Tenants with Rights of Survivorship” or as “Tenants in Common.” With Joint Tenants with Rights of Survivorship (JTWROS), each party owns the property equally and undivided. Depending on state law, if one party wants to transfer his or her share to another person during his or her lifetime, the other owner has to consent and sign the resulting deed. After the death of one owner, rights of survivorship mean that owner’s share is transferred automatically to the surviving owner. These survivorship rights trump the deceased owner’s will or state inheritance laws.

Tenants in Common (T-I-C) is where owners own equal or unequal shares of the same property. Each owner has full control over his or her share. The one owner can transfer his or her share to another person at any time without the approval of other owners. If an owner dies, this individual’s share of the property can be passed along to a person named in his or her will.

If you choose T-I-C, it’s important that both owners have a current Last Will and Testament that designates how each share of the property is dealt with upon one owner’s death.

Sharing a home with another senior has many advantages, and as Baby Boomers age, this trend may gain more popularity. Because of the age and stage of those involved, it’s important to ensure that all owners have their estate plans in place to protect each other and their heirs. An experienced estate planning attorney should be part of the process.

08/22/2016

This unassuming couple will be long remembered by community groups who will benefit from their generosity. A garden will be named for them at local hospital.

Rideout Health Foundation and four other local not-for-profits will receive generous donations from the estate of Doug and Jean Goss. The $2.2 million donation to the hospital foundation was completely unexpected, although Jean Goss had been a patient at the facility in the last few years of her life.

The (Marysville, CA) Appeal-Democrat reported in “Couple leaves $2.2M donation to Rideout” that the couple, who did not have children, donated their estate to area charities. $2.14 million will go to the hospital foundation's general fund—with more than $100,000 to benefit the foundation's scholarship fund.

Rideout CEO Gino Patrizio said, "The majority of the gift will go into the foundation's general fund, which we are using to create a lasting endowment to support the organization in perpetuity."

Jean was known to all as an avid gardener who tended to 75 rose bushes and 12 citrus trees. In light of this, the foundation plans to name the Healing Garden in the new hospital tower at Rideout Regional Medical Center after the Goss family. They will also plant rose bushes in their honor.

Doug grew up in Marysville and spent 40 years working as an electrical engineer for Pacific Gas & Electric. Jean was born in Dana, Indiana and moved to Yuba City in 1950 after marrying Doug. She was employed part-time in the County Assessor's Office.

The couple started working on their estate plan in the early 1990s. Long-time friends of the Goss family, Gene and Joan Erfle, didn’t know how much money they had until Gene was named as a trustee of the estate. As trustee, Gene followed the Gosses' wishes to give donations to Rideout Health Foundation, the Museum of the Forgotten Warriors, Sutter Buttes Canine Rescue, Mary Aaron Museum and the Community Memorial Museum of Sutter County.

In her later years, Jean had a heart condition that required frequent care at Rideout. She developed good relationships with the staff.

The Gosses created a legacy that will have a positive impact for many years to come on a community that was clearly very important to them. It should be noted that this kind of planning is not limited to “modest millionaires.” An estate planning attorney can help create a legacy for your family and your community—at any level of giving.

08/19/2016

While the number of people making New Year’s financial resolutions are on the rise, we would do well to make a midyear financial check a regular part of the summer season.

The good news is more than 30% of Americans did give some thought to making financial resolutions this past New Year, according to a survey from Fidelity Investments. The goals were nothing out of the ordinary. They were simply the things we should all be doing with our money: saving more, spending less and getting rid of debt.

While summer is a natural halfway point between New Year's financial resolutions and year-end tax planning, it's also a convenient time to contact financial experts, tax planners, human resources representatives and other advisors—who are less busy during their “off-season.” For your midyear financial checkup, look at each of these financial areas.

Taxes. By summer, you should have a decent idea of what's going on with your tax situation and can start planning. Are there any major life changes since last year to include in your tax strategy? This will mean a transition in your tax situation. Also, if you earned a nice tax refund in April or paid a large tax bill, you should ask for a W-4 from your employer and adjust your withholding. Also, look and see if you're maxing out workplace tax benefits—like your flexible spending accounts and retirement contributions.

Insurance. Use the summer to determine if your insurance plans are meeting your needs. Many employers have an open enrollment for health insurance and other benefits in late fall, so now’s the time to think about this.

Estate Planning. If you don't yet have an estate plan in place, speak with an experienced estate planning attorney. Don’t be one of the 64% of Americans that don't have a will. Get the basics prepared, such as an up-to-date will, power of attorney and health care directive.

Emergency Fund. Check on your emergency fund and see if it was depleted by a summer vacation or another event like a change of jobs. Time to beef it up! You should keep three to six months' worth of living expenses readily available. Build your rainy day fund by putting a percentage of your paycheck into savings every month. If you don't see that money available in your checking account, you won't miss it.

The Big Picture. Summer often includes vacation time. Use this time to get away from your regular day-to-day activities and think about your goals for the future. Ask yourself the big questions: where do you want to be in five years, ten years or twenty years? What matters for you and your family? Give some serious thought to your future and take the necessary steps to implement the financial and legal plans required to reach those goals.

08/18/2016

Moving a lifetime of possessions in or out of the country is one thing, but moving money from country to country without losing it takes a new kind of financial planner.

Whether you are retiring to a small cottage in the Cotswolds or coming home after a career that kept you in Asia’s booming manufacturing markets, there is a new type of professional who can help with one of the most potentially costly parts of the move: moving money across borders.

Financial and legal issues around the world can be very complex and change frequently. When you’re talking about money internationally, there are questions of immigration, taxes, labor, real estate, securities and other topics of concern. Problems can pop up in cross-border financial transactions such as penalties for failing to pay taxes or financial institutions refusing to transfer your money between domestic and foreign accounts. That said, here are some of the most important components of cross-border planning to consider:

Cash management: Remember there are disclosure requirements and regulations governing the movement of funds in and out of a country that can tie up your money, and if a U.S. citizen doesn’t disclose accounts overseas on the annual Report of Foreign Bank and Financial Accounts form, he or she could get hit with a $10,000 per violation penalty (or more!). Plus, currency exchange rates can really affect the value of your money.

Income taxes: American citizens living abroad still have to pay U.S. income taxes—plus any taxes from the income they earn in the country where they live and work.

Retirement planning: Every country is different as to their laws on the taxation of retirement savings. Failing to adhere to the rules may mean overpaying taxes on retirement funds, underpaying and being subject to penalties, or missing out on the government benefits for which you’re eligible. For instance, an employee who wants to rollover a U.S.-based retirement plan such as a 401(k) to Canada could find those accounts becoming taxable as soon as they are rolled over! However, if you do your homework and understand the tax laws of both countries, you should be able to handle the transfer mostly tax-free.

Estate planning: Foreign countries may not recognize and honor an estate plan created in the U.S. Inheritance tax regulations and tax treaties are different with every country. Heirs might inherit tax-free in one place and be hit hard with taxes in another. Talk with an estate planning attorney and make sure that your plan will work effectively if you will be retiring abroad.

Investing: There will be taxes and regulations to contend with when looking at investment income generated or moved internationally.

Insurance: Some insurance benefits may not be 100% transferable from country to country—like your U.S.-based health insurance policy may not pay your benefits in a foreign country. Also, a foreign country may not let your heirs receive a U.S.-based life insurance payout without some taxes. Sound planning may help you avoid these issues.

It is true that today we live in an increasingly global society, but the rules about how money is earned, saved, invested and transferred in and out of countries have become very complex. Be overly cautious and speak with an experienced attorney about cross-border planning so that you will know what to expect and understand the potential costs involved.